2 minute read 17 May 2021
CSR amendments rules, 2021

How can CSR Amendment Rules, 2021 bring a measured impact?

By Arpinder Singh

EY Global Markets and India Leader, Forensic & Integrity Services

Leading forensic accountant and veteran expert witness. Advising global clients on compliance, anti-corruption and corporate governance. Disruptive thinker. Technology aficionado. Author.

2 minute read 17 May 2021

Given the recent changes in CSR rules, organizations will have to focus on the following in their CSR programs’ life cycle to enhance governance and mitigate risks.

Corporate Social Responsibility (CSR) has evolved in India over the last few years from being voluntary and philanthropic to organizations instituting strategic programs to contribute toward causes that enable the welfare of the society. The focus and effort made around CSR was enhanced by the amendments to the Companies Act, 2013 that defined the scope for organizations above a certain size and threshold. Key amendments included the introduction of Section 135 that outlines mandatory spends, a defined program and a dedicated committee to administer and monitor the program.

In the present times, the ambit of CSR activities has grown manifold and is helping strengthen the country socially and economically. Today, CSR is playing a crucial role in supporting COVID-19 relief initiatives through contributions at multiple levels.

Several amendments to Section 135 of the Companies Act, 2013 and the Companies (Corporate Social Responsibility Policy) Rules, 2014 have been notified with effect from 22 January 2021.

Some of the changes in CSR rules include:

  1. Negative list introduced in the CSR definition
  2. Board is obligated to ensure that disbursed funds are utilized as approved and monitor implementations (fund allocations and timelines) of ongoing projects
  3. CSR implementing non-governmental organizations (NGOs) are required to be registered for income tax and company law purposes
  4. Companies are required to mandatorily spend their CSR obligation
  5. Treatment of unspent CSR amount at financial year end is dependent upon whether the project is an ongoing project or not.
  6. There shall be penalty on company and officers in default for failure to transfer unspent amounts as prescribed
  7. Companies are required to carry out impact assessment mandatorily for CSR projects meeting specified thresholds
  8. Reporting format for disclosures is revamped

Organizations will have to focus on the following in the CSR program’s life cycle to enhance governance and mitigate risks.

  1. Governance structure and identification of implementing partners
    • Governance structure
    • Strategy and objective setting 
  2. On-boarding implementing partners
    • Background, reputational and ethical track record of key personnel
    • Any allegations pertaining to illegal or unethical business practices
  3. Fund utilization review for CFO certification
    • Assessing the existing control framework
    • Funds are used for intended purposes as defined in the Memorandum of Understanding (MoU)
    • Risk of leakages
  4. Impact assessment
    • Alignment with global standards
    • Focused Group Discussions (FGDs) to be held with the communities
    • Benchmarking against leading industry practices

(Saguna Sodhi, EY India Partner - Forensic & Integrity Services has co-authored the article.)

Summary

Measuring performance and impact of CSR initiatives can be challenging as it is aimed at delivering long-term value for communities at large. With separate budgets being reserved for CSR and the amount of funding expected to augment with time, it is critical for organizations to build safeguards against misappropriation of fund and other vulnerabilities.

About this article

By Arpinder Singh

EY Global Markets and India Leader, Forensic & Integrity Services

Leading forensic accountant and veteran expert witness. Advising global clients on compliance, anti-corruption and corporate governance. Disruptive thinker. Technology aficionado. Author.